~ An Aussie look at Financial markets-Been in the Biz for over 30 years!

Tuesday 28th March – Australian Market Wrap

ASX 200 rose 74.5 points today to a 2017 high of 5821.2 in a strong performance led from the outset by banks and takeover activity. Looks like some of the shorts on the ASX are scrambling for cover as dividend cash hits the market. Asian markets mixed with Japan up 1.09% and China down 0.19%. AUD 76.21c and US futures up 28 looking to break an eight-day losing streak.

STOCKS AND SECTORS

Miners perked up despite weakness in underlying commodities. No one seems to care at the moment which suggests the buying is futures related rather than specific stocks. BHP +1.49%, RIO +1.54% and FortescueMetals (FMG) +1.32%. Base metal stocks also better with South 32 (S32) +1.12% and even SyrahResources (SYR) +5.43%, Iluka Resources (ILU) +3.57% and Alumina (AWC) +2.32%.

Banks and financials are being driven higher by the banking sector’s ability to raise interest rates in out of cycle rises to protect and increase margins. Plus, we are seeing large dividend payments being put to use in the market. $16 billion in dividends are being paid out in these two weeks, with more than $3 billion alone today. The BigBankBasket performed strongly with a rise to $184.74. Regionals also joined in the rally with Bank of Queensland (BOQ) +2.98%. Insurers were also bid led by Suncorp (SUN) +1.08%, QBE Insurance (QBE) +0.63% and Insurance Australia (IAG) +1.17%.

Speculative stock of the day: SmartTrans (SMA) +18.18% after announcing it had signed a deal with a leading Chinese e-Commerce company Wjike to sell Australian products to Chinese consumers.

CORPORATE NEWS

Quintis (QIN) +13.64% made a series of announcements after the surprise resignation of its founder MD Frank Wilson. Wilson has resigned as an unnamed international group has approached him to take over the company. Conflicts of interest all round and some serious questions to be answered from eth company but the bid talk was enough to send the sellers covering somewhat. Wilson described his partner as “well-funded” and “credible”, in a statement explaining his intentions.

Myer (MYR) -5.16% after no news from the buyer of the 10% stake yesterday. The company has used the Schultz defence and knows nothing.

Mantra (MTR) +12.26% has used a similar defence in response to press speculation about a possible takeover for the company from Marriott or another international hotel chain. The company has confirmed it has had no discussions with any one.

Syrah Resources (SYR) +5.43% has signed a MOU with BTR New Energy Materials in China regarding sales and supply chain cooperation. The Chinese company is the world’s largest manufacturer of Battery Anode Materials.

Southern Cross (SXL) +1.48% will sell its northern NSW television assets to WIN corporation for $55m. WIN will pay $45mon completion of the deal, and $10m on the first anniversary.

Oroton (ORL) -1.91% has cut its dividend after a fall in net profit to $1.8m. EBITDA fell 43.5% to $5m for the six months ending January 28 as weak sales at Oroton and GAP were exacerbated by a $1.3m hit from the weaker Australian dollar, which pushed up the cost of goods.

Woolworths (WOW) +1.20% chief Brad Banducci has told a food conference that consumer prices will rise inevitably as energy costs spiral out of control. After wages and rent energy is the third highest cost for the group.

BOND CORNER

ECONOMIC NEWS

After three straight weeks of falls, consumer confidence rose 1.6% in the week ending 26 March. The four-week average continued to fall, however, and is now back to early 2016 levels and close to its long run average.

Westpac’s St George and BankSA are set to announce rate increases of up to 32bps. AMP Bank is also set to announce a new round of rate rises for new and existing home buyers and investors of up to 28bps.

ASIAN NEWS

A Huishan Dairy executive cannot be reached as the company is struggling for survival given a 85% fall in the share price recently. The head of Treasury and cash operations has taken a leave of absence. The selloff came about three months after Carson Block, the short seller and founder of Muddy Waters, issued a report on Huishan alleging the company was worth “close to zero.” Sound familiar.

GME Group, a public works sub-contractor, has returned to trading in HK and experienced a 83% fall in the stock. The stock was suspended after a 542% jump on its opening due to lack of shares available to trade. During its suspension, the company placed another 588,000 and then the price collapsed.

American Airlines agreed to acquire a minority stake in China Southern Airlines for US$200 million, cementing a partnership between the top carriers in the U.S. and Asia.

EUROPE AND US

Two of Tesco’s largest shareholders have criticised the supermarket giant for its “foolhardy” GBP3.7bn merger with wholesaler Booker, arguing the deal would destroy billions of pounds worth of value. The two shareholders, who together hold 9%, or around GBP1.4bn worth have expressed dismay at the price paid. Tesco is paying 23 times peak operating profits.

And finally…..

A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings.

The wife quickly wraps herself in a towel and runs downstairs.

When she opens the door, there stands Bob, the next-door neighbor.

Before she says a word, Bob says, “I’ll give you $800 to drop that towel.”

After thinking for a moment, the woman drops her towel and stands naked in front of Bob. After a few seconds, Bob hands her $800 and leaves.

The woman wraps back up in the towel and goes back upstairs.

When she gets to the bathroom, her husband asks, “Who was that?”

“It was Bob the next door neighbor,” she replies.

“Great,” the husband says, “did he say anything about the $800 he owes me?”

Moral of the story: If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.